Lonza bulks up with $5.5B deal for Capsugel

Swiss CDMO Lonza will be U.S. contractor Capsugel in $5.5 billion deal.

Three days after acknowledging it was interested in buying Capsugel, Swiss CDMO Lonza pulled the trigger on a $5.5 billion deal to acquire the U.S.-based contract capsule and drug producer and create another sizable force in contract manufacturing.

Lonza said the cash deal with Capsugel owner KKR, which is expected to close in Q2 2017, includes refinancing $2 billion in Capsugel debt. Lonza said the acquisition should be acretive from the get-go and eventually provide about $100 million in savings through cross-selling opportunities and by combining manufacturing and services.  

They figure that a combined Lonza and Capsugel would have had 2015 revenues of about $4.8 billion and adjusted EBITDA of approximately $1.1 billion with an wider margins than the individual companies.

“The acquisition of Capsugel meets Lonza's strategic and financial goals. It accelerates our healthcare continuum strategy,” Lonza CEO Richard Ridinger said in a statement.  

Lonza works in specialty ingredients and biologics while Morristown, NJ-based Capsugel sells both empty two-piece capsules and finished dose products. The deal combines Lonza’s 9,800 full-time employees and 11 contract development and manufacturing sites worldwide with Capsugel’s 3,600 employees and 13 facilities on three continents. 

Out of that combo they figure they can extract about $30 million in annual savings in the first three years from combining corporate, procurement and IT functions. The deal should also lower their combined taxes by about $15 million a year. Longer-term the annual savings should add up to about $100 million, Lonza said.

After spending several years, cutting costs and trimming operations around the world, Lonza more recently has been searching for a deal that would broaden its scope and services and geographic reach  in the face of a consolidating contract industry in which a few players are becoming much larger.  Durham, North Carolina-based Patheon , which hooked up with DSM Pharmaceutical Products in 2014, spent a year pulling off deals to create a multibillion-dollar CDMO operation, while Sweden’s Recipharm has been making acquisitions, including a $205 million deal earlier this year for India’s Kemwell.  

It was reported some months back that Lonza was trying to buy U.S.-based Catalent but that deal never materialized. Several weeks ago Catalent made its own move into capsule manufacturing with an agreement to buy Canada-based Accucaps, a developer and manufacturer of over-the-counter, high-potency and conventional pharmaceutical softgels.